Bye-bye, Bush boom

 
 By Paul Krugman
 The New York Times
 July 6, 2004

 When does optimism - the George Bush campaign's favorite word these days -
 become an inability to face facts? On Friday, President Bush insisted that
 a seriously disappointing jobs report, which fell far short of the
 pre-announcement hype, was good news: "We're witnessing steady growth,
 steady growth. And that's important. We don't need boom-or-bust-type
 growth."
 
 But Mr. Bush has already presided over a bust. For the first time since
 1932, employment is lower in the summer of a presidential election year
 than it was on the previous Inauguration Day. Americans badly need a boom
 to make up the lost ground. And we're not getting it.
 
 When March's numbers came in much better than expected, I cautioned readers
 not to make too much of one good month. Similarly, we shouldn't make too
 much of June's disappointment. The question is whether, taking a longer
 perspective, the economy is performing well. And the answer is no.
 
 If you want a single number that tells the story, it's the percentage of
 adults who have jobs. When Mr. Bush took office, that number stood at 64.4.
 By last August it had fallen to 62.2 percent. In June, the number was 62.3.
 That is, during Mr. Bush's first 30 months, the job situation deteriorated
 drastically. Last summer it stabilized, and since then it may have improved
 slightly. But jobs are still very scarce, with little relief in sight.
 
 Bush campaign ads boast that 1.5 million jobs were added in the last 10
 months, as if that were a remarkable achievement. It isn't. During the
 Clinton years, the economy added 236,000 jobs in an average month. Those
 1.5 million jobs were barely enough to keep up with a growing working-age
 population.
 
 In the spring, it seemed as if the pace of job growth was accelerating: in
 March and April, the economy added almost 700,000 jobs. But that now looks
 like a blip - a one-time thing, not a break in the trend. May growth was
 slightly below the Clinton-era average, and June's numbers - only 112,000
 new jobs, and a decline in working hours - were pretty poor.
 
 What about overall growth? After two and a half years of slow growth, real
 G.D.P. surged in the third quarter of 2003, growing at an annual rate of
 more than 8 percent. But that surge appears to have been another blip. In
 the first quarter of 2004, growth was down to 3.9 percent, only slightly
 above the Clinton-era average. Scattered signs of weakness - rising new
 claims for unemployment insurance, sales warnings at Target and Wal-Mart,
 falling numbers for new durable goods orders - have led many analysts to
 suspect that growth slowed further in the second quarter.
 
 And economic growth is passing working Americans by. The average weekly
 earnings of nonsupervisory workers rose only 1.7 percent over the past
 year, lagging behind inflation. The president of Aetna, one of the biggest
 health insurers, recently told investors, "It's fair to say that a lot of
 the jobs being created may not be the jobs that come with benefits." Where
 is the growth going? No mystery: after-tax corporate profits as a share of
 G.D.P. have reached a level not seen since 1929.
 
 What should we be doing differently? For three years many economists have
 argued that the most effective job-creating policies would be increased aid
 to state and local governments, extended unemployment insurance and tax
 rebates for lower- and middle-income families. The Bush administration paid
 no attention - it never even gave New York all the aid Mr. Bush promised
 after 9/11, and it allowed extended unemployment insurance to lapse.
 Instead, it focused on tax cuts for the affluent, ignoring warnings that
 these would do little to create jobs.
 
 After good job growth in March and April, the administration declared its
 approach vindicated. That was premature, to say the least. Whatever boost
 the economy got from the tax cuts is now behind us, and given the size of
 the budget deficit, another big tax cut is out of the question. It's time
 to change the policy mix - to rescind some of those upper-income cuts and
 pursue the policies we should have been following all along.
 
 One last point: Government policies could do a lot about the failure of new
 jobs to come with health benefits, a huge source of anxiety for many
 American families. John Kerry is right to make health care a central plank
 of his platform. I'll analyze his proposals in a future column.